BoE stress tests: all you need to know

The Bank of England has released the results of its latest round of its annual banking stress tests and its semi-annual financial stability report this morning. Used to measure the resilience of a bank’s balance sheet in adverse scenarios, the stress tests measured the impact of a severe slowdown in Chinese growth, a global recession […]

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Draghi: Eurozone will decline without vital productivity growth

It’s productivity, stupid. European Central Bank president Mario Draghi has become the latest major policymaker to warn of the long-term economic damage posed by chronically low productivity growth, as he urged eurozone governments to take action to lift growth and stoke innovation. Speaking in Madrid on Wednesday, Mr Draghi noted that productivity rises in the […]

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Asia markets tentative ahead of Opec meeting

Wednesday 2.30am GMT Overview Markets across Asia were treading cautiously on Wednesday, following mild overnight gains for Wall Street, a weakening of the US dollar and as investors turned their attention to a meeting between Opec members later today. What to watch Oil prices are in focus ahead of Wednesday’s Opec meeting in Vienna. The […]

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Banks, Financial

RBS emerges as biggest failure in tough UK bank stress tests

Royal Bank of Scotland has emerged as the biggest failure in the UK’s annual stress tests, forcing the state-controlled lender to present regulators with a new plan to bolster its capital position by at least £2bn. Barclays and Standard Chartered also failed to meet some of their minimum hurdles in the toughest stress scenario ever […]

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Barclays: life in the old dog yet

Barclays, a former basket case of British banking, is beginning to look inspiringly mediocre. The bank has failed Bank of England stress tests less resoundingly than Royal Bank of Scotland. Investors believe its assets are worth only 10 per cent less than their book value, judging from the share price. Although Barclays’s legal team have […]

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Categorized | Banks

Lloyds Banking Group: horse play

Posted on July 31, 2015

Pedestrians pass a Lloyds Bank branch, a unit of Lloyds Banking Group Plc, in London, U.K., on Monday, July 27, 2015. Lloyds Chief Executive Officer Antonio Horta-Osorio is poised to present investors with what they've been waiting for: plans to increase the dividend. Photographer: Simon Dawson/Bloomberg©Bloomberg

    The past still weighs heavily on Lloyds Banking Group, even as chief executive António Horta-Osório tries to set the UK lender on a more stable course. It reported a 32 per cent leap in its statutory first-half profit to £925m. But that was below expectations, sending its shares lower. So too was its resumed dividend, slowing its hopes of regaining its income stock pedigree. That is a shame for the UK government, which is, bizarrely, planning to launch a costly public share offer to sell the rest of its stake (rather than selling by cheaper institutional placings).

    One painful legacy tethering Lloyds’ black horse to its past is mis-sold payment protection insurance. The bank set aside a higher-than-expected £1.4bn for PPI claims, lifting the total to date to £13.4bn, above the levels at other British banks. It also provided £435m for other conduct charges.

    More is the pity. Underlying profit of £4.4bn recovered convincingly, helped by a small revenue increase, bad loan charges that fell by three-quarters and continued progress on cost control. Lloyds’ cost-to-income ratio of 48.3 per cent is close to the level that once made it a benchmark for its rivals.

    But keeping the income line rising is becoming harder. While Lloyds posted a 5 per cent net increase in small business lending, it faces increased mortgage competition from recovering rivals and challenger banks. For now, higher profits lifted Lloyds’ common equity tier one ratio to 13.3 per cent even after the interim dividend. More of the dividend will go to private sector investors because the government’s stake has been cut to less than 15 per cent (from 41 at the bailout).

    With Lloyds tantalising investors with special dividends or buybacks from surplus capital, and given the smooth selldown of the government’s stake, UK chancellor George Osborne’s public offer plan seems a costly folly. Anyone who believes that Mr Horta-Osório can untether his black horse can already buy the shares on the market.

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